[00:00:00] Speaker 00:
Case number 16-1093 et al.

[00:00:04] Speaker 00:
Kansas Corporation Commission petitioner versus Federal Energy Regulatory Commission.

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Mr. Gray for the petitioner.

[00:00:11] Speaker 00:
Mr. and Ms.

[00:00:11] Speaker 00:
Wilmaithan for the respondent.

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Mr. Ross for the intervener.

[00:01:02] Speaker 06:
Mr. Gray, good morning.

[00:01:04] Speaker 04:
Good morning, Your Honors.

[00:01:05] Speaker 04:
May it please the Court.

[00:01:06] Speaker 04:
My name is Jason Gray from the law firm of Duncan, Weinberg, Ginzer, and Pembroke.

[00:01:11] Speaker 04:
I'm appearing this morning on behalf of the petitioner, Kansas Corporation Commission.

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A state agency that, among other things, is charged with representing the interests of wholesale transmission customers in Kansas in proceedings before the respondent firm.

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With the Court's permission, I would like to reserve three minutes of my time for rebuttal.

[00:01:31] Speaker 04:
Although Firk questions the court's jurisdiction to hear this appeal, I will focus first on the merits arguments before squarely addressing those challenges, because the substantive findings in the challenged orders demonstrate precisely why the Kansas Commission has standing and why this appeal is right for adjudication.

[00:01:46] Speaker 04:
That is, the very purpose of the findings the Kansas Commission is challenging was to determine legal rights of both not yet formed affiliates of TransSource Kansas and CanStar under Federal Power Act Section 205,

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and of entities like the Kansas Commission on the Federal Power Act 206.

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And the definitive effect of those legal determinations is the imposition of the Section 206 burden of proof on the Kansas Commission.

[00:02:11] Speaker 02:
But is it still at least conceptually possible that you would acknowledge that even though the Commission resolved those claims that there still will be a lack of standing?

[00:02:20] Speaker 04:
I don't think so, because I don't think there's any outstanding factual issue here.

[00:02:24] Speaker 04:
The issue is purely a legal determination, and that legal determination involves the burden of proof under sections 205 and 206.

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And those determinations have been made, so at any future proceeding, the Kansas Commission would not have the opportunity to challenge those determinations.

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This appeal is the only opportunity... If there is a procedure.

[00:02:44] Speaker 04:
If there is a proceeding, that's exactly correct.

[00:02:46] Speaker 04:
But that's a factual determination?

[00:02:49] Speaker 05:
No.

[00:02:49] Speaker 05:
Whether there's a proceeding is just an uncertain future condition.

[00:02:53] Speaker 04:
Exactly.

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But the legal standard has already been decided in these orders that would apply if there is a proceeding.

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and we would not have an opportunity outside of this appeal to challenge this.

[00:03:03] Speaker 02:
But if we don't even know, suppose that we have no idea whether there's going to be a proceeding, then we have no idea whether there's going to be any concrete joiner of these issues in a cognizable controversy.

[00:03:14] Speaker 02:
And if that's true, that's typically a situation in which we say either that there's not standing or that the circumstances haven't ripened to the sort of dispute that we resolve.

[00:03:23] Speaker 04:
Certainly, and I think if the court looks at the LSP transmission case, which FERC highlighted for the court in its October 30th rule 28 J letter, in discussing injury and fact and concrete harm, that case makes clear that the petitioner in that case was not harmed because there was no determination of legal rights and there was no imposition of a legal burden on the petitioner.

[00:03:45] Speaker 04:
And here we have both of those things.

[00:03:47] Speaker 04:
The determination of legal rights was under both sections 205 and 206, as I mentioned, and then the imposition of the burden of proof is on the Kansas Commission.

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And those were final determinations.

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There's no opportunity outside of this appeal to challenge those determinations in the future or to seek relief from what the Kansas Commission views as Fert's misallocation of the burden of proof.

[00:04:11] Speaker 05:
I mean, I said whether there'll be a proceeding, but whether there's a proceeding depends upon a number of intermediate steps, including a determination to object to the application of the formula rate in that, and therefore bring a proceeding, right?

[00:04:25] Speaker 05:
Then there may or may not be any objection.

[00:04:28] Speaker 04:
Well, and I think that's an important distinction.

[00:04:32] Speaker 04:
The way the request was proposed before FERC was that FERC would pre-approve this formula rate, including the base return on equity, and then the not yet formed affiliates could replicate or adopt that formula rate in the future.

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And that adoption or replication would take place in what's essentially a ministerial Section 205 filing, not a substantive Section 205 filing.

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The rate coincidentally turns out to be just and reasonable, whether the Kansas Commission has a question about the rate.

[00:05:01] Speaker 04:
Those types of questions are really one step removed from the threshold question that is on appeal.

[00:05:08] Speaker 04:
And it's whether those types of questions must be addressed in the first instance in a Section 205 filing, where the public utilities bear the burden of proof, or a Section 206 proceeding, where the Kansas Commission bears the burden of proof.

[00:05:21] Speaker 05:
One step removed.

[00:05:22] Speaker 05:
I mean, it's a step beyond.

[00:05:24] Speaker 05:
There's no burden of proof issue unless there's an objection to the application of the rate of return to the possibly changed circumstances.

[00:05:33] Speaker 04:
That may be the case.

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It may turn out that there is no issue.

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But the legal determination, if there is an issue, has to be made.

[00:05:38] Speaker 05:
Right, but the legal determination with no consequence if there's no subsequent issue and proceeding, correct?

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It's a legal determination.

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I mean, it's really a determination.

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The determination they've made, that the FERC made, has the consequence that you're shifted to a 206 proceeding.

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They didn't say, henceforth you – well, maybe they said it doesn't matter – henceforth you must proceed under 206, but it's obviously the consequence of the action that they took here.

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So – but that consequence is of no moment until there's an issue raised.

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When was this decision made by the FERC?

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The orders on re-hearing were issued in 2016.

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And the original order?

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The original orders were both in 2015, I believe.

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Any subsidiaries formed or activity taken by subsidiaries of the companies involved so far?

[00:06:29] Speaker 04:
I'm not aware of whether any of the not-yet-formed affiliates have, in fact, been formed.

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I know that there was one project which these entities are formed to bid on, hopefully to construct.

[00:06:40] Speaker 05:
I mean, they have to be formed in order to bid, and then they have to win the bid, and then they have to be – and then there has to be a grievance by the commission over the rate of return.

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All those things are conditions that have not yet been fulfilled.

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And that's exactly the issue here.

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So the issue, we really don't disagree on the standards governing standing and rightness.

[00:07:01] Speaker 04:
The issue is really whether the harm is actual, imminent, and concrete.

[00:07:04] Speaker 04:
Because it sounds like an argument then.

[00:07:07] Speaker 02:
It sounds like an argument in response to what Judge Ginsburg is raising is that

[00:07:10] Speaker 02:
Even if you grant that every one of those contingencies exists, and even if we knew to a moral certainty right now that none of them would come to pass, and so that we didn't have a subsequent proceeding at all, you'd still be saying that there's both standing and rightness with respect to your current challenge.

[00:07:27] Speaker 04:
Exactly, because the determinations are legal and they have been made.

[00:07:31] Speaker 05:
How is this not an advisory opinion that you're seeking?

[00:07:34] Speaker 04:
I think it potentially could have been, but if you look at the language in the orders, FERC makes clear it is pre-approving formula rate treatment.

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It is predetermining

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It's Section 205A obligation.

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It's actually abdicating that obligation that it will not make a Section 205A determination in the future because it's predetermined justice and reasonableness.

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It is predetermined that the not yet formed affiliates will not bear the burden of proof under Section 205A.

[00:08:03] Speaker 02:
What could be done?

[00:08:03] Speaker 02:
I guess your argument's even broader than I thought it was going to be because I thought when we came in here the issue was going to be whether there's a sufficient likelihood that there's going to be the subsequent proceeding such that you'd have standing and ripeness now.

[00:08:14] Speaker 02:
But your argument now is that

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Even if there's a complete unlikelihood that there will be a subsequent proceeding, there's still standing and rightness now, which seems puzzling to me because

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then the formula rate is just an abstraction.

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It's never going to be visited on anyone.

[00:08:36] Speaker 02:
And if the formula rate is never visited on anyone, actually, then what's the concrete harm that would give us the kind of injury and fact predicate that we need to resolve a concrete dispute, instead of just deciding what amounts to, it seems to me, a complete abstraction?

[00:08:52] Speaker 04:
Certainly, Your Honor.

[00:08:53] Speaker 04:
And it's actually both of those things.

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We're trying to, on the one hand, address the worst case scenario

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from our perspective in terms of standing in rightness, which would be none of these events actually occur.

[00:09:04] Speaker 02:
Which also may be not so good for you.

[00:09:06] Speaker 02:
The best case scenario for purposes of consumers, because then the formula rate is never actually applied.

[00:09:11] Speaker 04:
Exactly.

[00:09:12] Speaker 04:
So if that's the case, and we have none of those facts going for us, we still think there is standing in rightness here, because these are final legal determinations.

[00:09:19] Speaker 04:
But I don't think it's reasonable to assume these facts will never occur.

[00:09:23] Speaker 04:
These entities are being formed in order to build the Order 1000 projects, Order 1000 study processes are going forward.

[00:09:31] Speaker 04:
The very purpose of these determinations was based on the assumption that there's at least a high likelihood that this process will occur.

[00:09:38] Speaker 05:
I was referring to the LSP transmission case.

[00:09:49] Speaker 05:
Whatever you were quoting.

[00:09:55] Speaker 05:
Actual imminent and concrete harm.

[00:09:57] Speaker 05:
Okay, actual imminent and concrete.

[00:09:59] Speaker 05:
Here's your brief at 35.

[00:10:02] Speaker 05:
The record reflects a complete lack of certainty as to when a trans-source SPPND or MPT-Hartland SPPND will be formed.

[00:10:12] Speaker 05:
So you have something imminent and actual, but completely uncertain.

[00:10:16] Speaker 04:
Well, I think one distinction there

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It's a timing issue.

[00:10:21] Speaker 04:
There's no record evidence as to when the affiliate will be formed.

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But the very purpose of the findings we are challenging is to determine the legal rights that will be in effect when those entities are formed.

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So we're not saying there's uncertainty that they ever will be.

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We recognize that's potentially the case.

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But the very reason this filing was made and these determinations were made by Respondent Ferck was to address that potential that these entities would be formed.

[00:10:46] Speaker 05:
Let me ask you a question which is on the merits but reflects on this.

[00:10:49] Speaker 05:
As I understand it from the little outcroppings I've found in the record and in your brief, I think, the incumbent companies already have these shelf filings.

[00:11:03] Speaker 05:
The same kind of template rate that's been approved by the Kansas Commission.

[00:11:11] Speaker 05:
So what's the experience been with them?

[00:11:18] Speaker 05:
Have they, in fact, relied on those filings for some new project?

[00:11:24] Speaker 04:
Certainly.

[00:11:25] Speaker 04:
And if you have, I beg your indulgence just to back up one step before I directly respond to that question.

[00:11:31] Speaker 04:
So the experience with the two entities that have formula rates approved, TransSource Kansas and CanStar,

[00:11:36] Speaker 04:
is that they were the applicants in the FERC proceedings below.

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They complied with Section 205.

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They submitted substantive filings that demonstrated in the first instance the justness and reasonableness of the formula rates, including the returns on equity.

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And the joint appendix in this appeal, these are only excerpts, but contains over 350 pages of documentation they provided in support of their efforts to meet their burden of proof.

[00:12:00] Speaker 04:
on just the issue of cost of capital and return on equity alone.

[00:12:04] Speaker 05:
You're going into a lot of detail about the – is this the FERC proceeding?

[00:12:07] Speaker 05:
Yes.

[00:12:08] Speaker 05:
What I want to know is, at the Kansas Commission, where you've approved and the FERC has approved these standby filings, whatever we're going to call them, for incumbent providers, incumbent companies, what has the experience been with those companies?

[00:12:23] Speaker 05:
have they used the rates of the creative new subsidiaries?

[00:12:28] Speaker 04:
Certainly.

[00:12:28] Speaker 04:
In the proceedings below, and I apologize, I was trying to provide some context to get to the pre-approval and then the current experience.

[00:12:35] Speaker 04:
In the proceedings below, there's only been one project in SPP.

[00:12:39] Speaker 04:
It was not won by any of these incumbents, and that project was actually canceled.

[00:12:44] Speaker 04:
In other proceedings, and in particular the one that FERC supplied the court in its November 3rd rule 28-J letter,

[00:12:51] Speaker 04:
in which was a California independent system operator proceeding, which is the California equivalent of Southwest Power Pool here.

[00:12:58] Speaker 04:
There is a live project and that entity is going forward.

[00:13:01] Speaker 04:
So in the Southwest Power Pool where the entities Transource Kansas and Canstore and its affiliates are,

[00:13:07] Speaker 04:
There has not been a live project yet.

[00:13:09] Speaker 04:
That's an annual study process.

[00:13:11] Speaker 05:
Not been one for anyone, not just these two companies, but for the incumbent providers.

[00:13:17] Speaker 04:
That's correct.

[00:13:18] Speaker 04:
There's not been one for anyone.

[00:13:19] Speaker 05:
There was one project, but it was canceled.

[00:13:21] Speaker 05:
If the incumbent providers now were to, one of them were to win the right to service a new area, they would file the rate that's already been pre-approved, correct?

[00:13:32] Speaker 05:
Exactly.

[00:13:33] Speaker 05:
And what would be your burden in objecting to it?

[00:13:37] Speaker 04:
So if I understand your question, say Transource Kansas is one of the entities that submitted the Section 205 filing, won a project, and then sought to implement the rate that's been pre-approved.

[00:13:46] Speaker 04:
The Kansas Commission in that case, rightfully, would bear the Section 206 burden, because the two-part structure of the Federal Power Act provides that it is only after a rate is lawfully determined under Section 205, which is the case for Transource Kansas and Canstar, then the burden shifts to an entity like the Kansas Commission under Section 205.

[00:14:04] Speaker 05:
How is that different from the situation of the companies in this case?

[00:14:07] Speaker 04:
It's different from the not yet formed affiliates because those not yet formed affiliates, inherent in the fact that they do not yet exist, have never submitted a substantive Section 205 filing.

[00:14:17] Speaker 04:
And so FERC's findings below as to why that's not necessary, which we think are a legal issue that the federal power plainly requires it, but the factual findings below as to why that's not necessary is that these not yet formed affiliates

[00:14:30] Speaker 04:
will have the same parent companies and purpose as Transource Kansas and Canstar and therefore there's no need.

[00:14:36] Speaker 05:
I'm confused about this and I apologize if it should be clear but I'm finding it difficult.

[00:14:49] Speaker 05:
I mean, let me go back and just clarify this.

[00:14:53] Speaker 05:
There are certain companies that have been authorized by the Kansas Commission, right, to invoke a rate at a subsequent time at a point.

[00:15:03] Speaker 04:
By the respondent, FERC has made that authorization, yes.

[00:15:07] Speaker 05:
And have any incumbent companies used that authority?

[00:15:13] Speaker 04:
No, not incumbents or not.

[00:15:14] Speaker 05:
And did you object when the incumbents sought that authority and it was approved by the FERC?

[00:15:20] Speaker 04:
Let me give you a two-part answer.

[00:15:22] Speaker 04:
We did not object to the request to seek the rate pre-approval.

[00:15:25] Speaker 04:
We objected to components of the rate pre-approval.

[00:15:29] Speaker 04:
And that's the distinction, really.

[00:15:30] Speaker 04:
This is not a rate proceeding.

[00:15:32] Speaker 05:
And were you heard by the FERC?

[00:15:34] Speaker 04:
We were heard, and that's the type of process.

[00:15:36] Speaker 05:
And did they accept your position?

[00:15:38] Speaker 04:
They did accept our position.

[00:15:40] Speaker 04:
And as I was explaining, Transforce Kansas and Canstar submitted voluminous data.

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demonstrating, trying to meet their burden of proof.

[00:15:48] Speaker 04:
On just the cost of capital and equity, return on equity issues, they submitted 84 pages of expert witness testimony, one entity, and 79 pages the other, with many supporting exhibits.

[00:15:59] Speaker 04:
And FERC still found that they did not meet their Section 205E burden, inconsistent with the Kansas Commission's protest, and set that issue for hearing, so there was additional process.

[00:16:11] Speaker 04:
And the returns on equity that were ultimately approved were a result of a settlement as part of that additional process.

[00:16:16] Speaker 04:
With the not yet formed affiliates, we don't have any of that.

[00:16:19] Speaker 04:
We don't have a filing.

[00:16:21] Speaker 04:
We don't have a process.

[00:16:22] Speaker 04:
FERC has predetermined that at whatever time in the future those affiliates are formed, it will be just and reasonable for them to charge the same rates that were pre-approved for TransSource, Kansas, and CanStar.

[00:16:34] Speaker 04:
And any question about whether those rates actually are just and reasonable

[00:16:38] Speaker 04:
either at the time those entities are formed or based on the specific facts unique to those entities, will be determined under Section 206.

[00:16:46] Speaker 06:
All right, we'll give you a couple of minutes in reply.

[00:16:51] Speaker 05:
Thank you.

[00:16:54] Speaker 06:
Mr. Viswanathan?

[00:17:02] Speaker 03:
Good morning.

[00:17:06] Speaker 03:
There's been a number of questions about the standing and rightness issues.

[00:17:13] Speaker 03:
Just to be clear, I think the panel seems to get that none of these entities, whether the existing ones, Transource, Canstar,

[00:17:22] Speaker 03:
or any of their unformed affiliates will be able to actually implement the formula rates approved by the commission unless and until one of these entities is actually awarded a transmission project in the Southwest Power Pole competitive solicitation process.

[00:17:37] Speaker 03:
And at this point in time, that is still an uncertain proposition.

[00:17:42] Speaker 03:
Since the order's on review and since the petition's been filed, no project has been awarded to any of these entities.

[00:17:50] Speaker 03:
I understand that Kansas... Did the entities exist?

[00:17:55] Speaker 03:
So CanStar, I believe, has three existing entities.

[00:17:58] Speaker 03:
And my understanding is that Transource does not yet have any existing entities.

[00:18:04] Speaker 03:
Council, for interviewers, can probably shed some light on whether that's changed since the close of the record.

[00:18:11] Speaker 03:
But regardless of whether the entities exist or not, the concern that Kansas raises is one of the rates that are approved in the orders on review may not be current when – if and when a project is actually awarded to one of these entities.

[00:18:28] Speaker 03:
Well, that's a problem that applies to all of these entities, because for all we know, a yet to be formed affiliate can be the first one to actually win a project.

[00:18:37] Speaker 03:
And the existing entities may never want a project.

[00:18:39] Speaker 03:
We just don't know.

[00:18:41] Speaker 03:
And what this court has said in a number of cases is regardless of whether any determination, legal determinations were made by the commission, there still needs to be an injury, a concrete injury flowing from those determinations.

[00:18:56] Speaker 03:
And both LSP and I believe the New York Regional Interconnect case involved a similar factual context of the bidding process for transmission projects in a regional entity

[00:19:06] Speaker 03:
And in both of those cases, there were no active proposals.

[00:19:09] Speaker 03:
And so there was no in and threat of harm from the orders on review.

[00:19:13] Speaker 03:
And that's the exact situation we're in now.

[00:19:16] Speaker 03:
I'll also point out on this idea of the legal determinations, there's been a number of decisions from this court that have stated that

[00:19:22] Speaker 03:
uh, presidential effect within the agency.

[00:19:26] Speaker 03:
If it's unmoored from any actual harm or injury from the substance of the orders is not enough to confer standing.

[00:19:33] Speaker 03:
So they still have to show a concrete or at least imminent threat of standing, imminent threat of injury, and they don't have the ability to do that.

[00:19:41] Speaker 03:
Um, one point I'd like to add is that

[00:19:46] Speaker 03:
Kansas hasn't really disputed the practical considerations behind the commission's orders.

[00:19:52] Speaker 03:
The record before the commission reflected that there is a limited amount of time between when the Southwest Powerful actually announces a project and the time in which bids are due for that project.

[00:20:04] Speaker 03:
And so the record for the commission reflected that these entities could not wait until a project had been announced before they submit an application to the commission, which is why they submitted all of their applications in advance of that bidding window.

[00:20:18] Speaker 03:
That's something the commission has approved prior to the orders on review.

[00:20:22] Speaker 03:
It's approved that since the orders on review.

[00:20:25] Speaker 03:
And the reason for that is that these are all non-incumbent transmission developers who don't have existing mechanisms to recover costs in the way that incumbent transmission owners would.

[00:20:36] Speaker 03:
And so the commission found and it agreed with

[00:20:40] Speaker 03:
the filing parties that these entities need to be able to have those approvals prior to the start of that bidding window so they could put together the most competitive bids possible and put themselves in a position to actually want a project.

[00:20:55] Speaker 03:
One other point that was raised, the ability of entities like Kansas to actually challenge in the future, challenge these rate determinations in the future, they absolutely have the ability to challenge them.

[00:21:08] Speaker 03:
The commission made clear in the orders on review that

[00:21:12] Speaker 03:
They can bring a complaint under Section 206 of the Federal Power Act.

[00:21:16] Speaker 03:
The Commission can also itself investigate whether the rates, if they are to be paid in the future, are actually just and reasonable.

[00:21:25] Speaker 03:
And this Court has held on a couple different occasions that Section 206 is a sufficient remedy under the statute to ensure that rates are actually just and reasonable.

[00:21:35] Speaker 02:
When you just said that the commission can itself determine whether the rates are going to be just and reasonable on a going forward basis, that's under 205 or that's under 206?

[00:21:44] Speaker 03:
That's under 206.

[00:21:45] Speaker 02:
Yeah.

[00:21:45] Speaker 03:
So the commission can investigate whether at some future point in time, if one of these entities attempts to implement a rate, the commission can itself initiate an investigation.

[00:21:55] Speaker 02:
So there definitely is an opportunity to challenge the application, the formula rate in the future, but it's also definitely true that the challenge is going to be under 206 rather than 205.

[00:22:04] Speaker 03:
I think that's right.

[00:22:05] Speaker 03:
I mean, I think what the commission stated in the orders is that it didn't see the need to re-litigate the justice and reasonableness of the rate requests with respect to the yet to be formed affiliates because of the fact that they were seeking, the filing party were seeking approval for those yet to be formed affiliates to use the identical rate that they were presenting to the commission.

[00:22:24] Speaker 03:
And so because of the fact that it was the exact same rate, these are entities operating in the same corporate family, they're formed for the same purpose, they're participating in the same regional competitive solicitation process, the commission didn't see the need to re-litigate that in the future proceeding, but it did clarify that 206 is available to challenge rates as needed in the future.

[00:22:45] Speaker 06:
Can I ask you about your PJM subsequent holding and the 205 similar situated?

[00:22:55] Speaker 06:
How do you intend to use that?

[00:22:58] Speaker 06:
Would that apply to Kansas?

[00:23:01] Speaker 03:
Well, I think you're referring to the PJM order that the commission issued this year.

[00:23:05] Speaker 03:
And that relates to entities operating in a different regional entity.

[00:23:10] Speaker 03:
I think that was the PJM entity.

[00:23:13] Speaker 03:
And we've also submitted a different order from, I think, a month ago where the commission, that was another regional entity where the commission took the same approach in terms of yet to be formed affiliates and what they need to show in the future as it did in the orders on review.

[00:23:29] Speaker 03:
I think to the extent there's any confusion about the PJM order, because most of what's in the PJM order really tracks the language of what's in the orders on review.

[00:23:39] Speaker 03:
I understand there is that phrase to the effect of clarifying the future.

[00:23:44] Speaker 06:
I thought there was an additional 205

[00:23:48] Speaker 03:
Yes, and so I think that's what the PJM order said, which is that future affiliates, when they actually want to implement a raid, they have to come forward with another 205 filing to demonstrate the justness and reasonableness of the raid.

[00:24:02] Speaker 06:
All right, and are you saying that does not apply to this particular power pool, or what?

[00:24:06] Speaker 03:
It does not apply, no, because the orders on review were about entities operating in a different region, which is the southwest power pool.

[00:24:15] Speaker 06:
I know, but why is that RTO any different from any other?

[00:24:20] Speaker 03:
So I mean it's a different regional entity.

[00:24:24] Speaker 03:
I don't really have a good explanation for why that particular order seemed to take a different approach than all the other commission orders on the issue of yet to be formed affiliates using formula rates in the future.

[00:24:36] Speaker 03:
It does appear to be an outlier in that respect.

[00:24:39] Speaker 03:
I mean one sort of internally inconsistent point about that PJM order is that it has the exact same language as the orders on review in terms of

[00:24:47] Speaker 03:
not seeing a need to re-litigate the justice and reasonableness of rates for use by a future affiliate.

[00:24:55] Speaker 03:
But then you think of the next paragraph, they say we clarify that the future affiliates have to submit their own 205 filings.

[00:25:02] Speaker 03:
I mean, I'll just add what we stated in our letter to this court, which is that these are subsequent orders.

[00:25:10] Speaker 03:
they wouldn't necessarily undermine the reasonableness of what the Commission did in the Orders on Review.

[00:25:15] Speaker 03:
Kansas hasn't really pointed to any inconsistency in Commission precedent prior to the Orders on Review, so I don't think the PJM order should undermine the Orders on Review.

[00:25:24] Speaker 06:
And you also – you may not be able to say this – you also can't tell us whether that's going to be a clarification that applies to this particular power pool.

[00:25:36] Speaker 03:
Well, I mean, the orders on review did not include that clarification, so we know that it doesn't apply to Southwest Powerful.

[00:25:44] Speaker 03:
I don't really have a good answer for why that language is inserted into orders regarding a different regional entity.

[00:25:50] Speaker 03:
It does appear to be an outlier.

[00:25:53] Speaker 03:
The Desert Link order that we submitted from last month is a different regional entity, and that sort of takes the same track as orders on review.

[00:26:01] Speaker 03:
I'm happy to answer any other questions as to the merits, otherwise I'll just submit.

[00:26:08] Speaker 03:
Thank you.

[00:26:14] Speaker 01:
Good morning and may it please the court, Stephen Ross, for the interveners.

[00:26:18] Speaker 01:
Following up on Judge Ginnford's point, one point that was kind of glided over a little bit here was the main benefit to the interveners and commission's orders is that our clients can now fill out the templates that allow us to participate fully in the next SPP competitive process.

[00:26:35] Speaker 01:
If we did not have the ability

[00:26:37] Speaker 01:
to do that, and as Council for FERC said, the timing otherwise would not permit.

[00:26:41] Speaker 01:
We would lose, as the record shows, we would lose significant points on the scoring and not participate, likely.

[00:26:47] Speaker 01:
And the Kansas Commission has never indicated why that is a harm to its state ratepayers for us to be in those competitive auctions.

[00:26:56] Speaker 01:
What it does is allow an additional competitor to be in play.

[00:27:00] Speaker 01:
which the more competitors, the more downward pressure on prices, and that can only be a benefit to the Kansas consumers.

[00:27:07] Speaker 01:
Also, the only time that our clients will come back before the commission in the Section 205 case to move these rates into the SPP tariff is if we won the bid.

[00:27:17] Speaker 01:
And if we won the bid, that means that SPP determined at the time that our bid was the best bid among all the competitor bids.

[00:27:23] Speaker 01:
And the record in the cases to date in competitive auctions throughout the country have indicated

[00:27:29] Speaker 01:
that most bidders are now submitting bid concessions, lower returns, cost caps, other cost containment.

[00:27:36] Speaker 01:
We have no idea whether if we did win the bid, if our clients did win the bid, we would in fact ask for the same ROE that was approved for Canstar.

[00:27:44] Speaker 01:
It may be that the competitive pressures would not permit us to seek an ROE that high.

[00:27:49] Speaker 01:
And we'll come in with our filing, we'll show the bid that won, and the Kansas Commission will have an opportunity to demonstrate why, even though the SPP determined that our bid was the best bid, why even that rate was unjust and reasonable.

[00:28:00] Speaker 01:
And our view is they'll have a full opportunity at that time to contest the justice and reasonableness.

[00:28:07] Speaker 01:
As to the point about the incumbents, I think that's a very important point, is that those incumbent returns on equities and rates, they could be, have been determined in orders that predated the Commission's orders in Can, Star, and Transors.

[00:28:21] Speaker 01:
And the Can Commission has never raised a concern that the IROEs that were approved there could be three, four years older than our IROEs.

[00:28:27] Speaker 01:
The fact of the matter is, that's how rate-making works.

[00:28:30] Speaker 01:
You take a snapshot of the IROE at the time of the market conditions, which is what we did,

[00:28:34] Speaker 01:
And that ROE stays in place unless and until it's changed.

[00:28:37] Speaker 05:
I'm asking you to repeat that.

[00:28:38] Speaker 05:
If you would, the incumbents did what, three or four years ago?

[00:28:41] Speaker 01:
The ROEs that the incumbents had approved by FERC could be in orders that are older than the trans-source orders.

[00:28:46] Speaker 01:
So that the record in that case could be even older than the trans-source orders.

[00:28:50] Speaker 05:
So by the time they wanted to... But they also would result at some later time if there was a proceeding in

[00:28:58] Speaker 05:
putting the KCC to a 206 burden.

[00:29:03] Speaker 01:
It may well be that the KCC and the Commission decides based on the KCC's evidence that either our client or the incumbents did not meet their burden under Section 205.

[00:29:12] Speaker 01:
I think we just don't know how the Commission will rule on that.

[00:29:16] Speaker 01:
It may be that we argue that they should rely on the orders from 2015 and 2016.

[00:29:20] Speaker 01:
The Commission may choose not to do that.

[00:29:22] Speaker 01:
I think the other point is, as my last point as Council for Commission said, that there was no evidence submitted for the new affiliates.

[00:29:34] Speaker 01:
The fact of the matter is, as he demonstrated, there was a lot of market cap evidence that was used to set the returns for the two interveners in this case, and the Commission found, as it needed to,

[00:29:44] Speaker 01:
that the analysis the commission would have used for the affiliates would have been identical.

[00:29:50] Speaker 01:
It was the same market cap data that would have been used to set it.

[00:29:53] Speaker 01:
So if we would have filed 14 applications and burdened the record with 14 identical filings, the ROE determination and the underlying analysis would have been identical.

[00:30:03] Speaker 01:
Thank you.

[00:30:06] Speaker 06:
All right.

[00:30:06] Speaker 06:
Does Mr. Gray have any time?

[00:30:08] Speaker 06:
Why don't you take two minutes?

[00:30:12] Speaker 05:
And please, in your two minutes, address the situation of the incumbents.

[00:30:17] Speaker 04:
Certainly.

[00:30:17] Speaker 04:
And I just want to make four brief points, and I'll start with that issue of the incumbents.

[00:30:21] Speaker 04:
I believe counsel for the joint intervenors just stated

[00:30:26] Speaker 04:
entities that have filed under Section 205 and have rates approved, those rates may change over time, and that's exactly how rate making works, and that's what we did.

[00:30:33] Speaker 04:
I don't know who the we in that context was, if it was intended to be the not yet formed affiliates, because they did not submit Section 205 filings.

[00:30:40] Speaker 04:
So the fact that a rate may change over time once FERC affirmatively found it to be just and reasonable, that's how the Federal Power Act works.

[00:30:48] Speaker 04:
But by presuming that a rate established for someone else is just unreasonable and that that rate may change over time, we skipped that very important first step.

[00:30:56] Speaker 05:
I don't understand that to be a response to the situation of the incumbents.

[00:30:59] Speaker 05:
Well, maybe I don't understand the question.

[00:31:01] Speaker 05:
Well, I heard from Mr. Ross that incumbents had already gotten FERC-approved standby rates, if you will, three or four years before the current companies did, and that the commission did not object.

[00:31:15] Speaker 04:
If I understand the question, we do not object to any of the affiliates, once they're formed, coming in and filing for pre-approval of a formula rate.

[00:31:26] Speaker 04:
But they have to make that filing on a substantive basis.

[00:31:28] Speaker 04:
They can't rely on or have someone else's filing imputed to them in a non-substantive Section 205 filing.

[00:31:35] Speaker 04:
Is that responsive?

[00:31:37] Speaker 05:
The incumbent firms went through a proceeding like the present one, correct?

[00:31:45] Speaker 05:
And FERC approved these templates for that.

[00:31:48] Speaker 04:
You are referring to Transforce Kansas and Canstar as the incumbent?

[00:31:51] Speaker 05:
I'm referring to companies not present here.

[00:31:55] Speaker 04:
Okay, yeah, so incumbent transmission owners that currently have assets in search, certainly.

[00:32:01] Speaker 05:
And did you object to that?

[00:32:02] Speaker 05:
Did you take the same position in the wake of that decision that you're taking here?

[00:32:09] Speaker 04:
Well, the issue's different there.

[00:32:10] Speaker 04:
We certainly filed protests in several of those proceedings, and we filed Section 206 complaints in those proceedings.

[00:32:15] Speaker 05:
And I think you said earlier you were heard and your positions were accepted in that.

[00:32:20] Speaker 04:
In some instances they were and some were not, but the key difference is that there was an actual entity making a filing there, and here we don't even know who these affiliates are.

[00:32:29] Speaker 04:
They're not yet formed.

[00:32:32] Speaker 05:
I'm not sure why you think that's material.

[00:32:36] Speaker 05:
I don't see how FERC can make – can engage in – If they approve a rate for an existing incumbent to be used in the future, then they approve a rate for an existing holding company to be used by forming a subsidiary in the future to use the rate.

[00:32:51] Speaker 05:
What is the distinction?

[00:32:52] Speaker 04:
Well, and let me try to address it this way.

[00:32:54] Speaker 04:
So the reason that FERC said we don't need to have the 14 separate filings that counsel referred to was because they will be similarly situated.

[00:33:02] Speaker 04:
They will have the same parents.

[00:33:04] Speaker 04:
The joint intervener's brief demonstrates that there's no basis for that finding.

[00:33:08] Speaker 04:
In the corporate disclosure statements, they explain that Transource Kansas is owned in part by Great Plains Energy, that Canstar is owned in part by Westar, and that Great Plains Energy and Westar are involved in a transaction where ownership of those entities will be combined.

[00:33:21] Speaker 04:
So what that means is at the time one of these not yet formed affiliates seeks to implement the rate that was previously approved, it's possible, if not highly likely, that that affiliate will have different parent companies at that time than Transource Kansas and Canstar had at the time the rates were initially established under Section 205.

[00:33:39] Speaker 05:
What's the significance of that?

[00:33:41] Speaker 04:
Well, the significance of that is FERC's finding that there's no reason to litigate separate rates is because all of these entities will be the same.

[00:33:48] Speaker 04:
We demonstrated in our initial brief on pages 38 to 42 that we disagree with that.

[00:33:52] Speaker 04:
In what way will it be different?

[00:33:54] Speaker 04:
be just besides the fact that the names of the holding companies will be different?

[00:34:13] Speaker 04:
where we can hammer out all of those issues.

[00:34:14] Speaker 02:
Doesn't it seem like the better your argument gets on the merits, at least from understanding your argument, the better it gets on the merits because there's the possibility that these entities that come along are going to be differently situated, the worse it gets on standing because we don't know if that's ever going to happen precisely because there's that degree of uncertainty.

[00:34:30] Speaker 04:
Well, and I think the real issue when we've cited the Alabama Municipal Distributors case in our brief is whether the determinations are final and dispositive such that we would be precluded in the future from making these arguments.

[00:34:42] Speaker 04:
And without relief from the court now, we would not have any opportunity to challenge the allocation of the burden of proof.

[00:34:48] Speaker 04:
So we're really addressing two issues, but I see harm either way.

[00:34:52] Speaker 04:
One is harmed by the legal determinations.

[00:34:54] Speaker 04:
And then one is the speculation about what those entities may look like.

[00:34:59] Speaker 04:
That's hard to us as well because we just can't determine rates now for entities that we don't exist.

[00:35:04] Speaker 04:
And I would submit...

[00:35:06] Speaker 04:
The answer, if you are sympathetic to the practical considerations, is while there is no current project, they could either submit 14 individual filings.

[00:35:15] Speaker 04:
But if that's burdensome, the answer is to do what FERC did in PJM and not start over, not start from scratch and recreate new formula rates, but allow these affiliates to come in and demonstrate substantively why replication is appropriate, that capital market conditions have not changed, that they are, in fact, similarly situated.

[00:35:32] Speaker 04:
That's the right answer.

[00:35:34] Speaker 04:
And FERC has never offered any meaningful explanation as to why or how the Federal Power Act supports the opposite answer in this case.

[00:35:45] Speaker 04:
Thank you.